Supreme Court decision appears to fortify 'fortress Europe'

United Kingdom

The decision of the Court of Appeal in Oracle America Inc (Formerly Sun Microsystems Inc) v M-Tech Data Ltd was dubbed a setback for trademark owners and a warning that they may have to be careful in the enforcement of their rights. On appeal, the UK Supreme Court has - in what some might say was a ruthless first judgment by Lord Sumption - allowed an appeal against the Court of Appeal's decision, in which the latter had held that a parallel importer's 'Euro-defences' under Articles 34 to 36 of the Treaty on the Functioning of the European Union and the EU principle of abuse of rights had a 'real prospect of success'. In so doing, the Supreme Court declined to make a reference to the Court of Justice of the European Union (ECJ), which the Court of Appeal had thought was likely to be made.

The question put to the Supreme Court was whether an entity importing goods (in this case, disk drives) from outside the European Economic Area (EEA) and selling them in the EEA, without the consent of the trademark owner, could defend itself in a trademark infringement action on the grounds that the trademark owner's conduct was designed to obstruct the free movement of goods, distort competition in the EEA and was an abuse of their rights (collectively the 'Euro defences').   

First, M-Tech Data Ltd argued that Oracle's trademarks were not enforceable, as the object and effect of its enforcement policy was intended to result (and did indeed result) in the partitioning of the EEA market in Oracle hardware contrary to the free movement of goods provisions (now Articles 34 to 36 of the Treaty on the Functioning of the European Union).

The court however held that Oracle sought only to enforce its right to control the first marketing of its hardware in the EEA (as it is rightly entitled to do under Articles 5 and 7 of the EU Trademarks Directive (2008/95/EC). Of vital importance was the view taken by the court that, on the evidence, Oracle was not attempting to control the movement of its products within the EEA. Thus, the Supreme Court ruled that the free movement of goods provisions were not triggered and were irrelevant to the question at hand. The Supreme Court pointed out that, if M-Tech's argument was accepted by it, the scope of this defence would result in Oracle being unable to enforce its trademark rights against any infringing party, including counterfeiters (see Paragraph 28 of the judgment), an obviously unacceptable consequence.

Second, M-Tech contended that the exercise of Oracle's trademark rights in conjunction with the effect of its distribution agreements (which prevented its distributors from reselling to any unauthorised distributors) and its practice of allowing only authorised distributors access to its database to enable them to check what products had been put on the market by it or its authorised distributors in the EEA, was inconsistent with Article 101 of the treaty. Article 101 prohibits all agreements which may affect trade between member states and which aim or result in the prevention, restriction or distortion of competition within the EEA. M-Tech argued that Oracle's exercise of its trademark and its distribution policy effectively eliminated the independent secondary distribution market and that this fell within Article 101.

The court, however, held that there was no connection between the exercise of Oracle's trademark rights and its distribution policy. Although the distribution of Oracle hardware through authorised Oracle dealers may be construed as a bundle of anti-competitive agreements, the crux of the matter for the purposes of Article 101 lay in whether this distribution network had any connection with Oracle's right to control the first marketing of their trademarked hardware in the EEA. The court ruled that no such connection existed: it said that the withholding of information had no anti-competitive effect on the choices of Oracle's authorised distributors or on Oracle's right to control the first marketing of the products within the EEA. 

Thirdly, M-Tech argued that enforcement of Oracle's trademarks would constitute an abuse of rights, a developing area of ECJ jurisprudence.

In the court's view, Oracle's actions in seeking to control the first marketing of its product in the EEA was an ordinary exercise of the rights conferred on Oracle by Articles 5 and 7 of the directive. Taking part in activities designed to reduce or eliminate parallel imports from outside the EEA, for instance, by withholding information about provenance, and a policy of aggressively pursuing independent resellers found dealing in the EEA in Oracle hardware which had not been marketed there by Oracle or with their consent, had no bearing on the enforcement of trademark rights and could not of itself constitute an abuse of the right to do so.

The decision appears to fortify 'fortress Europe', the fears that trademark owners may have had with regard to the efficacy of Euro-defences being allayed.

Euro defences and claims of trademark infringement must overcome certain hurdles before they are likely to have any success. These hurdles are high, and include the judgment in Davidoff & Cie SA v Gofkid Ltd ((C-292/00)), which clearly propounds that consent under Article 7 of the directive cannot be either imposed or deemed. For a Euro-defence to stand a chance of success, consent must be imposed where there are no 'legitimate grounds' for opposing resale (Article 7.2 of the directive). As ever, therefore, the tension lies in obtaining a balance or a fair outcome between the rights of IP rights owners (and all that entails and results in) alongside that of the public at large. 

Mark Lubbock and Alina Fazal, Ashurst LLP, London

Get unlimited access to all WTR content